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Turbulence Ahead 

Boeing hasn't yet decided where it will build the 777X — either way, it has big ramifications for the Inland Northwest

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Spokane County Commissioner Al French holds up his smartphone with a stock-market app showing Boeing's shares soaring.

"If you were to do a three-year timeline, this thing looks like Mount Everest," French says.

Boeing is posting record profits. It's the world's largest aerospace company — No. 30 on the Fortune 500 — and it's poised to grow even more. An aging fleet, a sizable backlog and the explosion of the middle class across Asia and the Middle East mean that Boeing's biggest problem is meeting all that demand.

The question isn't if there will be an aerospace boom in the next few decades — it's where. Whether Washington state and Spokane County will be able to take advantage of Boeing's thriving business is still very much in the air. French says nothing can be taken for granted.

"This notion that they're here, and since they've been here forever, they'll be here forever, is a big threat," French says.

The latest battle has been over the 777X, Boeing's next big fuel-efficient composite-wing plane. Gov. Jay Inslee has called it "the single most important thing for the economy in the next decade for the state of Washington." At the beginning of November, Inslee called a special session of the legislature to pass a bill extending Boeing the biggest state tax break in U.S. history.

But the aerospace giant agreed to build the plane in-state only if the machinists union signed an eight-year contract. Boeing promised union members a $10,000 signing bonus.

The majority of Boeing machinists, however, saw it as a slap in the face. The contract would have weakened future retirement benefits and slowed down wage increases for new workers. Some ripped up copies of the proposed contract. Others set it on fire. Workers rejected the offer by 2-to-1. "I'm just so proud of our brothers and sisters," says Robley Evans, a forklift driver at Boeing's Auburn plant. "You will not threaten us. You will not blackmail us. Period."

click to enlarge A graphic from the Inland Northwest Aerospace Consortium showcases a broad range of area companies that contribute to the aerospace industry.
  • A graphic from the Inland Northwest Aerospace Consortium showcases a broad range of area companies that contribute to the aerospace industry.

With that, the future of the state's aerospace sector got a little cloudier. Washington is still in the running, but Boeing has been considering other suitors — from states like Texas, South Carolina, Alabama, Utah and Missouri — who bring promises of cheap labor and custom incentives.

"The company will continue to leverage its full resources to ensure that we remain competitive," Boeing spokesman Doug Alder says, who adds that Boeing hopes to have a site selected by sometime next year.

That ultimate decision could reverberate across the Inland Northwest. In the past few years, manufacturers, politicians and educators throughout the region have been fighting to boost the aerospace industry — recruiting new companies, strengthening its supply chain and training a new workforce. A few years ago, Greater Spokane Inc. bragged about 80 aerospace-related businesses in the region. Now it can boast about having more than 100.

"As I talk to companies throughout the country, the one thing that I hear that is most frustrating is 'Wow, Spokane has that? We didn't know that'," French says. "That's our fault."

Slowly, he says, that's changing. "We're getting on everybody's radar."

The Grand Plan

When French drives to the Portland airport, he sees the surrounding property brimming with aerospace businesses and manufacturers. Not so in Spokane. "You go out to Spokane [International Airport], you see vacant land — crickets getting lonely," French says.

But he says that's finally beginning to change. French is on the board of the Spokane International Airport and is a part of Air Spokane, an alliance of local officials and business advocates who want to grow the local aerospace industry. He says the region has finally become more aggressive in wooing aerospace companies.

With labor costs expensive and space scarce in the Puget Sound area, Spokane has pitched itself as a plausible in-state alternative to help Boeing meet its demand.

"If Boeing is constrained in Renton, could we provide the opportunity for a facility to be built here in Spokane?" asks Airport Director Larry Krauter.

In 2011, consulting group Accenture analyzed which Washington city was most ideal in which to construct the 737 MAX. Unsurprisingly, longtime 737 manufacturer Renton ranked first. But Accenture ranked Spokane second, praising the region's workforce pool, size and low labor cost. Boeing chose Renton, but that hasn't stopped local leaders from promoting Spokane as an alternative if production ever outgrows the Puget Sound facility.

When French sees Boeing's big green fuselages gliding past downtown Spokane on the railroad tracks, rolling by Spokane International and onward to westside factories, he thinks: Spokane could easily affix the wings to those fuselages.

"We can give you everything Seattle can give you, except for congestion," French says he told a Boeing executive, then quipping: "But if that's important to you, we'll artificially create it."

On the second floor of the Spokane International Airport, Krauter motions across a wall-sized aerial photograph of Spokane International, across the vast quantities of empty land owned by the airport. Part of that land is reserved for a future runway, but the rest is vacant. Open for business.

Krauter and French want to recruit manufacturers to operate near the airport, tackling different elements of aerospace production. An assembly line of assembly lines.

"You can railcar in raw materials, go to finish production and final assembly, all at the same site," French says. "That's the master plan."

Air Spokane plans to hire a consultant within the next two months to examine the current aerospace industry and suggest which sort of companies would be best to recruit.

Pieces already are in place. On the map, Krauter points to a warehouse just off the airport: That's Associated Painters, the company that's painted a Colorado flag across a Southwest Airlines airplane and giant salmon across Alaska Airlines fuselages. In 2010, the company relocated its headquarters from Everett to Airway Heights. By spring it will have a second warehouse in the region, ready to step up production and hire up to 50 employees.

click to enlarge Josh Newburg, left, and Nick Bell install solenoids. As a quarter of Boeing machinists prepare to retire, Washington has rushed to train new aerospace employees through conduits like Spokane Community College's aviation program. - YOUNG KWAK
  • Young Kwak
  • Josh Newburg, left, and Nick Bell install solenoids. As a quarter of Boeing machinists prepare to retire, Washington has rushed to train new aerospace employees through conduits like Spokane Community College's aviation program.

French estimates 20 major aerospace companies have Spokane on their radar. Aviation Technical Services, a maintenance and repair company, has narrowed down the location of its next facility to either Everett or Spokane, promising 400 to 450 new jobs. Another, a metals manufacturer with 300 more jobs, is prepared to settle in Spokane County if it can find a facility low-priced enough to meet its bottom line.

A coalition of groups and businesses have even created a "site selector" website at selectspokane.com, a place where aerospace businesses can learn nearly everything they need to know about available spots for future facilities.

Spokane County is also seeking out other aerospace giants like Airbus, Bombardier and Spirit to help diversify the local industry. Even one major manufacturer moving here could result in a cascade of others doing the same. Still, Boeing's proximity remains one of Spokane's strongest recruiting assets — if the company ever were to leave, Spokane could lose that.

"Because Boeing is here, other airline manufacturers are also looking at Spokane," French says.

Critical Mass

The scent of melting plastic hangs in the air as baby-blue robot arms whir back and forth over a programmed track, precisely slicing aircraft seat parts from molded plastic.

Dean Cameron, national sales manager for the Spokane Valley manufacturer Multifab, Inc., walks past rows of sewing machines and piles of tray-table pieces, business-class stow bins, class-divider curtains and bulletproof ballistic blankets.

"The word 'hurry' — expedite, rush and hurry — is used lots around here," Cameron says. "One of the most common phrases you'll hear is 'The customer is moving the delivery to the left.' Where they may have had it scheduled for February, they need it by December."

Boeing brings the same hard-line cost-cutting philosophy it's used in its union battles to negotiations with its suppliers. "I'm sounding like Darth Vader here," Boeing CEO Jim McNerney chuckled as he outlined the company's tough stance with suppliers at an investor conference in May: Low-performing suppliers could land on a "No Fly" list — banned from selling to Boeing. Boeing already has sent letters to some suppliers, telling them they aren't allowed to bid on the 777X.

The Spokane region has adapted: Since 2006, many local aerospace manufacturers have joined together as the Inland NorthWest Aerospace Consortium (INWAC), even though many of the individual companies are competitors.

Mike Marzetta, president of Liberty Lake manufacturer Altek and an INWAC chair, squints at the small gap between his thumb and index finger. "We might be able to take this much of a slice," he says, before spreading his arms wide, "of a pie that's this big."

He continues: "It's coop-etition. You combine your efforts."

And it's working.

Airplane hubcaps, equipped with tire-pressure-detecting sensors, are built at Altek. Airplane wheels and brakes are built locally at UTC Aerospace. In a former Boeing plant in Airway Heights, Triumph Composite Systems churns out ductwork and floor panels for airplanes.

Spokane County aerospace wages have risen like a rocket, soaring 66 percent from 2007's $38.7 million to $64.4 million in 2012.

In part, credit INWAC's push for certification. Top-tier certifications for the aerospace industry are expensive and time-consuming to obtain, but are required to work with a company like Boeing or its suppliers. Marzetta runs a blue highlighter across a list of all the local companies who've recently acquired their certification: Accra-Fab, Altek, Apex Industries, Inland Northwest Metallurgical Services, Novation... 11 companies total.

In turn, the companies have been rewarded.

"Three years ago, aerospace was probably 15 percent of our business. Now it's 45 percent of our business," Marzetta says of Altek. Last year, aerospace was one-twentieth of L&M Precision Fabrication's business; this year it's nearly a third.

Manufacturers once ignored at aerospace trade shows have found they get noticed when they're part of INWAC. Suppliers and assemblers can bring their shopping list of parts to INWAC, and INWAC can match them up with local subcontractors that can build them.

In one sense, the aerospace market is globalized. This year Boeing purchased 780 million parts from 1,200 suppliers in 39 different countries. Spokane plants produce parts for suppliers in Germany and France, and likely still will no matter where the 777X is built. But location still matters, because location impacts speed. By connecting local companies with each other, INWAC has given them crucial efficiencies.

Marzetta turns a power supply for an airplane cockpit in his hand. Bare parts like these are sent to Inland Northwest Metallurgical Services for heat-treating or to Novation for nickel-plating, then back to Altek. Since they're both nearby, the process takes days or even hours instead of weeks.

"Prior to them committing to the aerospace industry, we had to ship this crap across the country to get plated," Marzetta says. "It's turned a competitive weakness into a competitive advantage."

That's the story across the region: L&M sends seat braces to MultiFab, which attaches seat-belt brackets. MultiFab produces molded plastic specifically for UTC Aerospace systems to ship its brake pads.

click to enlarge Fred Brown, vice-president of L&M Precision Fabrication, has seen major growth in his company in Spokane County — though he says operations would be much cheaper in Idaho. - YOUNG KWAK
  • Young Kwak
  • Fred Brown, vice-president of L&M Precision Fabrication, has seen major growth in his company in Spokane County — though he says operations would be much cheaper in Idaho.

Marzetta likes the pressure of speed and quality. "We had this old company idea — we don't do business with Boeing because it's such a pain in the butt," Marzetta says. "And I was like, 'No, no, no.' We need to look at that differently. We want to do business with Boeing because it's a pain in the butt."

While "slow and fat and happy" competitors struggle and complain, nimble and scrappy manufacturers move up.

"They haven't had to crawl and scratch their way into competitiveness," Marzetta says.

Politics and Profits

Part of being nimble and scrappy comes down to picking the perfect location. It's why Titan Spring Inc. chose Hayden, Idaho.

The manufacturer makes springs that go into everything from airplane seat pockets to Boeing satellites. One, a thick, 2-foot-long coil, is heading for the machinery of an airplane bathroom, while another, as tiny as a watch battery, will make up a crucial piece of a pacemaker.

Just a few years ago, Titan Spring was located in the once-mighty aerospace hub of Southern California. But over the past two decades, California's aerospace industry crashed. From 1990 to 2012, aerospace jobs in Los Angeles County fell from 130,000 to less than 39,000.

"They're the worst in the United States," Titan Spring president Jim Glenn says about California. "They love to tax, they love to regulate. You don't get anything out of them."

Torn between Spokane and North Idaho when fleeing the Golden State, he says overhearing Washington Sen. Patty Murray on the radio sent him to Idaho.

"Washington state seems like they take their cue from California with their politics," Glenn says.

He doesn't like Washington's minimum wage — highest in the country — or the B&O tax businesses have to pay even if they lose money. "It's a hell of a thing to lose money and have to borrow money to pay your taxes," he says.

In Airway Heights, L&M Precision Fabrication's Fred Brown reels off his frustrations with Washington's environmental regulations, workers' compensation insurance structure and tax structure. He worries the business climate is repelling Boeing.

"Our cost of operation would be reduced 30 percent by moving to Post Falls. I'm 63 years old. I don't have enough life left to amortize it out," says Brown. "That's the only thing that has kept us in Spokane."

Yet few companies wield as much power over Washington state policy as Boeing. When the state Ecology Department sought to update inaccurate fish-consumption rate estimates, Boeing — along with other businesses — pushed back, worried it would cause stricter environmental standards. Many people, citing internal governmental emails, credit the company's behind-the-scenes lobbying efforts with repeatedly stalling Ecology's review.

Even the sort of politicians who condemn special interests make an exception for Boeing. The progressive activist group Fuse Washington gave state Sen. Andy Billig (D-Spokane) the 2012 "Inter-Continental Smackdown Champion Award," praising him for ending unjust tax breaks for special interests. Yet when it came to Boeing's special interests, Billig recently joined 41 other state senators in extending Boeing preferential tax treatment worth $8.7 billion through 2040.

"I oppose the tax incentives that don't work," Billig says. The Boeing tax break, he says, has been proven to work, spurring economic development and thus more tax revenue. Washington also has a variety of general tax exemptions for the aerospace industry.

But those efforts haven't stopped Boeing from pulling pieces out of the state. In 2001, Boeing moved its headquarters from Seattle to Chicago. A decade ago, Boeing opted to farm out construction of entire sections of the Boeing 787 Dreamliner worldwide, including part of the fuselage in South Carolina.

The machinists union has often clashed with Boeing. A 2008 strike lasted four weeks and cost Boeing more than $2 billion. State Sen. Michael Baumgartner's proposed solution is to make Washington a "Right to Work" state, a change that could cripple unions by eliminating mandatory union dues.

"Look, if 'Right to Work' can happen in Michigan, it can happen in the state of Washington," Baumgartner (R-Spokane) says. "Obviously, it's a political challenge. Mandatory union donations are the No. 1 funder of Democratic candidates."

Even with the high cost of labor and contentious union negotiations, Washington has one last ace up its sleeve: The same skilled workforce that refused to take Boeing's contract.

Building for the Future

Washington's trained workers are probably its best argument. As Inslee bragged on Twitter on Nov. 20: "WA has best aerospace workers in the world and hard as other states will try, they can't replicate [local union] expertise in time to win 777X."

The 2011 Accenture study identified Washington's skilled workforce as one of the state's greatest strengths, but warned that other states could catch up. North Idaho College, for example, just launched an Aerospace Division this fall.

It's why the Washington State Legislature paired its big tax break for Boeing with even more funding for education. On both sides of the Cascades, local regions are investing in training.

Washington State University is opening a branch campus in Everett aimed at training Boeing machinists. A $20 million federal grant to Air Washington in 2011 infused local community colleges with extra funds to improve their aerospace training. The extra funds allowed Spokane Community College to add a program focusing on composites, the material used in the 777X, and expand its aviation maintenance program by 25 percent.

For his part, Inslee hasn't just been praising Washington's workforce; he's been highlighting how using a less adept workforce amounts to gambling with billions of dollars. Inslee points to the 787 Dreamliner, which was plagued by new suppliers' parts that didn't fit and expensive mistakes made by inexperienced workers in South Carolina. Even before the 787s were temporarily grounded due to battery fires this summer, the plane had experienced three years of delays costing billions of dollars.

Back at the Spokane County offices, Al French thumbs through pages from a few of the many PowerPoint presentations he's given across the country, attempting to convince aerospace executives to invest in the Inland Northwest. The stakes remain sky-high. "There isn't a trip I make back to D.C. that I'm not talking to someone in the aerospace industry," he says.

French says it all comes down to providing jobs. "We don't need a big building with Boeing on it. We want the jobs," French says.

Another good thing about adding high-skilled, well-paying jobs to Spokane is that they have secondary impacts. The aerospace industry carries a multiplier effect, the economist's version of a buy-one-get-one-free policy. Adding 10 aerospace jobs, according to Greater Spokane Inc.'s estimate, creates about eight additional secondary jobs.

"That's new money — that comes from outside the community into the community, and then it ripples through," French says. "It's not just a job on the production line. It's that job, plus the other jobs it supports in the community, by supporting the grocery store and the car [salesman] and the construction worker." ♦

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